Real Estate Insider: With $17.2 billion bet, rival Detroit casinos will share the same landlord

A $17.2 billion real estate deal has implications — even if just on paper — for Detroit’s casinos.

New York City-based Vici Properties Inc. (NYSE: VICI), already owner of the real estate for Greektown Casino-Hotel, is buying Summerlin South, Nev.-based MGM Growth Properties LLC (NYSE: MGP), which owns MGM Grand Detroit’s real estate, meaning that two of the city’s three casinos will have the same landlord.

Vici Properties is the real estate arm of Caesars Entertainment Corp., while MGM Growth Properties is the real estate spinoff of MGM Resorts International (NYSE: MGM). The deal is supposed to close in the first half of 2022, also putting control of much of the Las Vegas Strip under one company.

To your average gambler at either Detroit casino, there will be virtually no change, said Matt Cullen, chairman of Jack Entertainment LLC, which is a tenant of Vici’s in Cleveland and who helped orchestrate the $1 billion sale of Greektown Casino-Hotel to Vici and Wyomissing, Pa.-based Penn National Gaming Inc.

That May 2019 deal included approximately $700 million cash from Vici for the land and real estate assets and approximately $300 million from Penn National Gaming for the operating assets, Crain’s reported at the time.

“I would expect it to be invisible to folks in Detroit,” Cullen said. “It’s much more like a permanent mortgage on your house. You operate the house, you maintain it, you pay the taxes. They just collect the rent, or the mortgage payment.”

The deal includes Vici taking on $5.7 billion in MGM Growth Properties debt; it amounts to $43 per Class A MGM Growth Properties share, a 15.9 percent premium on the Aug. 3 closing price, according to a news release earlier this month. MGM Resorts International also gets $43 per share for the majority of MGM Growth Properties operating partnership units totaling about $4.4 billion and retains 12 million operating partnership units in a new partnership with Vici. Class B shares of MGM Growth Properties will no longer exist.

Once the deal closes, Vici enters into a 25-year master lease with MGM Resorts with annual rent of $860 million and then three 10-year renewal options. The first 10 years of the master lease will see 2 percent annual rent increases, with increases of the greater of 2 percent per year or the consumer price index, not greater than 3 percent.

Vici says the deal adds 15 properties at a 30 to 40 percent discount to replacement cost to its portfolio and diversifies its tenant base, and diversifying its rent roll. It includes 33,000 hotel rooms, 3.6 million square feet of meeting and convention space and food, beverage and entertainment venues.

“Through this transformative strategic acquisition, we are merging (MGM Growth Properties’) best-in-class portfolio into Vici’s best-in-class management and governance platform, creating the premier gaming, entertainment and leisure REIT in America,” Ed Pitoniak, CEO of Vici Properties, said in a press release.

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